Long-term financial investments are important

Planning for your financial future is one of the most important things young people can do to be secure later in life. Although students have already taken part of that step by attending college, The Beacon feels that students need to do more to create financial security in their futures.

On March 31, Wilkes University's Students in Free Enterprise and Money Matters clubs delivered a presentation on long-term financial planning.

Only one student attended the presentation given by two business students from Wilkes.

The poor turnout of the presentation gave way to an issue greater than just not planning for the future – that students just don't care about planning for their financial futures. Although we are young, students should begin to start thinking about good ways to plan for their futures once they become employed out of college.

Raina Connor, a junior business administration major, took part in the presentation and discussed the importance of long-term financial planning because it is "necessary to budget your expenses accordingly throughout all stages of your life." Financial planning can be used for paying off loans, buying a house and saving for retirement.

Connor talked about a few important ways to save and invest, such as investing in the stock market or opening an Individual Retirement Account or a Roth IRA.

An IRA is extremely important because our generation is probably the first that will have to completely finance its own retirement.

Students cannot count on Social Security because that program is already greatly in debt.

The difference between a traditional IRA and a Roth IRA is the traditional IRA is taxed when money is withdrawn. Therefore, the money will be taxed at the tax rate when we are in our 60s. A Roth IRA is similar, but when you put money in, the money is taxed immediately, so you can withdraw any amount later in life without being taxed.

For younger people, a Roth IRA is a good way to go because tax rates will probably be much higher later in life.

In addition, once students are employed after college, they should begin thinking about a 401K, which is an employer-sponsored retirement program in which an employee saves for retirement with a monthly deduction from his or her paycheck.

A 401K is a great plan because employees can contribute as much as they possibly can until the "match point," which is the maximum the employer will match their savings. This match point is usually about $16,000.

Another important point to remember is that the money you have saved in a 401K at one job will still be yours if you leave or are fired from the job.

Connor gave examples of how saving for retirement can really affect your financial life.

At 25 years old, with an initial investment into an IRA of $1,000 with a monthly addition of $500 and an interest rate of 5 percent, a person could invest for 40 years and invest about $240,000. This would lead to interest totaling about $532,000 with total savings being about $774,000. Earning more than $530,000 in interest is definitely a great step in planning for your future.

Let's say you started when you were 35 years old, instead of 25 years old, with all of the conditions the same. You would end up investing $181,000 with a total interest of $241,000, which gives a grand total of about $422,000. That amount is little more than half of what you could have saved if you started saving 10 years earlier.

Later in life, you will want to have money to fall back on and to make sure you can provide for your family.

The Beacon feels that opening an IRA and working with your employer to ensure your 401K is secure is a great way of getting a head start in investing for your future.